We use Bayesian Markov Chain Monte Carlo methods to investigate the linkage between the volatility of ethanol security prices and the uncertainty surrounding the profitability of ethanol production and the price variations of non-ethanol energy securities. The joint evolution of return and volatility is modeled as a stochastic process that incorporates jumps in both return and volatility. While...

Article history: Received 23 August 2011 Received in revised form 16 April 2012 Accepted 19 April 2012 Available online 5 May 2012 This paper proposes a two-state Markov-switching model for stock market returns in which the state-dependent expected returns, their variance and associated regime-switching dynamics are allowed to respond to market information. More specifically, we apply this mode...

We study the strategic behavior of equity analysts whose compensation is based on relative performance of their stock recommendations. Our model predicts that riskaverse analysts issue identical recommendations to avoid falling behind their peers. Top analyst awards, on the other hand, motivate analysts to issue bold recommendations. However, when the stock return is very volatile, the herding ...

They should reduce their equity position. We study the portfolio problem of a long-horizon investor that allocates between a risk-less and a risky asset in an environment where both volatility and expected returns are time-varying. We find that investors, regardless of their horizon, should substantially decrease risk exposure after an increase in volatility. Ignoring variation in volatility le...

The bid–ask spread is taken as an important measure of the financial market liquidity. In this article, we study the dynamics of the spread return and the spread volatility of four liquid stocks in the Chinese stock market, including the memory effect and the multifractal nature. By investigating the autocorrelation function and the Detrended Fluctuation Analysis (DFA), we find that the spread ...

The empirical evidence on the effect of options trading on the underlying stocks primarily comes from the United States. The existing literature is surveyed by Damodaran and Subrahmanyam (1992). They find a consistent evidence of positive excess returns with the introduction of call options and negative excess returns with the introduction of put options. They also find strong evidence of a dec...

We report that the probability that executives exercise options early decreases with the volatility of the underlying stock return. We interpret this to mean that executives’ subjective option value increases with volatility and that option grants increase executives’ risk appetite. Further decomposition reveals that the results are most pronounced for idiosyncratic volatility, consistent with ...

in this research the asymmetric and non-linear correlation between the market returns and trading volume variables has modeled with the dcc-garch approach; and the impacts of market shocks, weekend and calendar effects on the market returns and trading volume are surveyed. the estimation results of parameters of the model by the maximum likelihood method show that previous day’s market return h...

In many emerging stock markets, price limits are imposed on the magnitude of daily price movements. Price limit advocates claim that such limits serve as "circuit breakers" and decrease stock price volatility. Critics argue that the limits cause supply and demand imbalances in trading. Consequently, they prevent immediate corrections in price and increase the volatility of the opening return on...

This paper introduces a no-arbitrage framework to assess how macroeconomic factors help explain the risk-premium agents require to bear the risk of fluctuations in stock market volatility. We develop a model in which return volatility is stochastic and derive no-arbitrage conditions linking volatility to macroeconomic factors. We estimate the model using data related to variance swaps, which ar...